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European Debt Crisis

European leaders not optimistic for 2012

Stephen Beard Jan 2, 2012

Stacey Vanek Smith: 2012 is shaping up to be a tough year for the eurozone. Most economists predict a recession.

Marketplace’s Stephen Beard is with us now live from London. Good morning Stephen.

Stephen Beard: Hello Stacey.

Smith: So Stephen, a pretty gloomy start to 2012.

Beard: Yes. Leaders usually like to bound into the new year, brimming over with confidence and optimism — but they’re certainly not doing that this year. The German leader, for example, says Europe is facing its severest test in decades.

But the gloom is, sadly, justified. Eurozone governments have between them to borrow more than $200 billion over next three months, and their borrowing costs are climbing. So there is the prospect of one or more of them defaulting. The euro itself is taking the heat — it’s just ended its second consecutive annual decline against the dollar, down 13 percent from its peak of two years ago.

Smith: It can’t all be gloom and doom, can it? Are there any glimmers of hope?

Beard: Well, how’s this for a glimmer — the Italian prime minister says Italy has hauled itself back from the edge of the precipice. That’s about the most upbeat thing he has to say, while the German leader, Angela Merkel, says eurozone countries are growing closer because of the crisis.

But Andrew Hilton at the CSFI think-tank sees little comfort in that.

Andrew Hilton: If indeed Merkel is right that the euro is helping the Europeans to grow together, I’m afraid that they are going to grow together as a low-growth economy, rather than as a sort of high-growth economy that she would like, and indeed, that the world needs.

He says all the austerity in Europe is condeming the eurozone to a vicious downward spiral. Many economists now say that as the U.S. recovers further this year, the eurozone could well slip back into recession.

Smith: Our own Stephen Beard in London. Thank you Stephen.

Beard: OK Stacey.

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